Sri Lanka money off highs ahead of cash auction

Dec 22, 2011 (LBO) – Sri Lanka’s overnight money markets came off highs reached a day earlier to stay around 9.25/30 levels after authorities announced a 20 billion rupee cash auction, dealers said. Gilt backed repurchase deals were quoted around 8.25/35 percent.

On Wednesday money reached 9.75 percent and repos rose 8.45 percent. The central bank injected 12 billion rupees to cool interbank markets at an average rate of 8.18 percent.

Dealers say a higher 20 billion auction on Thursday would help as it is the ‘squaring off day’ where banks which ran short reserves have to clear their positions.

In December there is a seasonal holiday demand for cash.

But Sri Lanka’s interbank markets began to run out of cash from August after the central bank began to defend a peg with the US dollar which came under pressure from strong credit growth.

Large volumes of cash have been injected to money markets to offset or ‘sterilize’ interventions in forex markets, from September.